22nd Century Group, Inc. - FORM 8-K - EX-99.3 - February 1, 2011

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8-K - 22nd Century Group, Inc.v209313_8k.htm
EX-2.1 - 22nd Century Group, Inc.v209313_ex2-1.htm
EX-2.2 - 22nd Century Group, Inc.v209313_ex2-2.htm
EX-10.3 - 22nd Century Group, Inc.v209313_ex10-3.htm
EX-10.6 - 22nd Century Group, Inc.v209313_ex10-6.htm
EX-10.4 - 22nd Century Group, Inc.v209313_ex10-4.htm
EX-10.5 - 22nd Century Group, Inc.v209313_ex10-5.htm
EX-10.8 - 22nd Century Group, Inc.v209313_ex10-8.htm
EX-99.2 - 22nd Century Group, Inc.v209313_ex99-2.htm
EX-99.1 - 22nd Century Group, Inc.v209313_ex99-1.htm
EX-10.2 - 22nd Century Group, Inc.v209313_ex10-2.htm
EX-17.1 - 22nd Century Group, Inc.v209313_ex17-1.htm
EX-10.9 - 22nd Century Group, Inc.v209313_ex10-9.htm
EX-10.7 - 22nd Century Group, Inc.v209313_ex10-7.htm
EX-16.1 - 22nd Century Group, Inc.v209313_ex16-1.htm
EX-10.16 - 22nd Century Group, Inc.v209313_ex10-16.htm
EX-10.18 - 22nd Century Group, Inc.v209313_ex10-18.htm
EX-10.12 - 22nd Century Group, Inc.v209313_ex10-12.htm
EX-10.13 - 22nd Century Group, Inc.v209313_ex10-13.htm
EX-10.10 - 22nd Century Group, Inc.v209313_ex10-10.htm
EX-10.11 - 22nd Century Group, Inc.v209313_ex10-11.htm
EX-10.17 - 22nd Century Group, Inc.v209313_ex10-17.htm
EX-10.14 - 22nd Century Group, Inc.v209313_ex10-14.htm
EX-10.15 - 22nd Century Group, Inc.v209313_ex10-15.htm
 
EXHIBIT 99.3
 
22nd Century Group, Inc.
PRO FORMA UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
As of September 30, 2010
and
For the Nine Months September 30, 2010and the Year Ended December 31, 2009

The following unaudited pro forma consolidated financial statements (“pro forma statements”) give effect to the reverse acquisition of 22nd Century Limited, LLC by 22nd Century Group, Inc. and are based on the estimates and assumptions set forth herein and in the notes to such pro forma statements.

On January 25, 2011, 22nd Century Limited, LLC (“22nd Century”) completed a reverse merger transaction (the “Merger”) with 22nd Century Group, Inc. (formerly Touchstone Mining Limited). 22nd Century is a wholly owned subsidiary of 22nd Century Group, Inc (“Parent”), which continues to operate the business of 22nd Century. Parent issued 21,434,446 shares of its common stock to the holders of 22nd Century Membership Units, which represents 80.1% of the outstanding shares immediately following the merger..

The Merger is being accounted for as a reverse acquisition and a recapitalization; 22nd Century is the acquirer for accounting purposes. Consequently, the Assets and liabilities and the historical operations that will be reflected in the financial statements prior to the Merger will be those of 22nd Century and will be recorded at the historical cost basis of 22nd Century, and the consolidated financial statements after completion of the Merger will include the assets and liabilities of 22nd Century, historical operations of 22nd Century and operations of Parent from the closing date of the Merger.

Upon the closing of the Merger, Parent transferred all of its operating assets and liabilities to Touchstone Split Corp. and split-off Touchstone Split Corp. through the sale of all of the outstanding capital stock of Touchstone Split Corp. (“the Split-Off”). After the completion of the Merger and Split Off, 22nd Century Group Inc.’s consolidated financial statements will include only the assets and liabilities of 22nd Century.

Immediately prior to the completion of the Merger, 22nd Century completed a private placement of 5,434,446 Units of its securities for total gross proceeds of $5,434,446. Offering proceeds included $614,070 of indebtedness and $395,396 of Placement Agent Fees which were converted into PPO securities so that gross cash proceeds were $4,424,980.  Offering expenses incurred including cash expenses of approximately $1,005,000 and non cash expenses consisting of the Placement Agent fees of $395,396 and $390,000 for the estimated fair value of the Placement Agent and Advisor Warrants issued to the Placement Agent. 22nd Century received net cash proceeds of approximately $ 3,420,000. Each Unit consisted of one Membership Unit and a warrant to purchase one-half share of a Membership Unit exercisable at $1.50 per share. The Membership Units and warrants of 22nd Century were exchanged in the Merger for shares and warrants of Parent on a one for one basis. Upon closing the Merger Parent had 26,759,646 shares outstanding.

These pro forma financial statements are prepared assuming the transaction occurred on September 30, 2010 (as to the balance sheet) and on January 1, 2009 (as to the statements of operations). 22nd Century has a December 31 year end while Parent has a September 30 year end. Since the year ends are within 93 days, 22nd Century’s operations for the year ended December 31, 2009 were combined with Parent’s operations for the year ended September 30, 2009.

Audited financial statements of 22nd Century and Parent have been used in the preparation of the pro forma statement of operations for the year ended December 31, 2009. Unaudited balance sheet of 22nd Century and the audited balance sheet of Parent have been used in the preparation of the pro forma balance sheet as of September 30, 2010. Unaudited financial statements have been used in the preparation of the pro forma statement of operations for the nine months ended September 30, 2010: a) for 22nd Century, its unaudited historical statement of operations for the nine months ended September 30, 2010; b) for Parent, its unaudited historical statement of operations for the nine months ended June 30, 2010.

The pro forma financial statements should be read in conjunction with the separate financial statements and related notes thereto of the 22nd Century and Parent. These pro forma financial statements are not necessarily indicative of the combined financial position, had the acquisition occurred at September 30, 2010, or the combined results of operations which might have existed for the periods presented or the results of operations as they may be in the future.
 
 
 
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
22ND CENTURY GROUP, INC. AND SUBSIDIARIES
September 30, 2010
                               
   
22nd Century
Limited, LLC
    
22nd Century
Group, Inc.
    
Adjustment
Note 1
    
Adjustment
Note 2
    
Pro forma
  
ASSETS
                              
                               
Current assets:
                              
Cash
   $ 1,288     $ 323     $ (323 )   $ 3,490,000     $ 3,491,288  
Accounts Receivable
     40,604                               40,604  
Inventory
     317,503                               317,503  
Prepaid expenses
     23,254                               23,254  
Total current assets
     382,649       323       (323 )     3,490,000       3,872,649  
                                         
Other assets:
                                        
Patent and trademark costs, net
     1,471,765                               1,471,765  
Mineral property reclamation bond
             4,330       (4,330 )             —  
Debt issuance costs, net
     3,592                               3,592  
Deferred Private Placement Costs
     352,930                       (352,930 )     —  
Deposits
     1,535                               1,535  
Total other assets
     1,829,822       4,330       (4,330 )     (352,930 )     1,476,892  
                                         
Total assets
   $ 2,212,471     $ 4,653     $ (4,653 )   $ 3,137,070     $ 5,349,540  
                                         
LIABILITIES AND MEMBERS' DEFICIT
                                        
                                         
Current liabilities:
                                        
Demand bank loans
   $ 239,352                             $ 239,352  
Accounts payable
     2,468,072     $ 55,450     $ (55,450 )   $ (282,930 )     2,185,142  
Accrued expenses
     349,625       11,277       (11,277 )             349,625  
Unearned revenue
     20,302                               20,302  
Notes payable to members net of unamortized discount
     834,852                       (614,070 )     220,782  
Note payable - stockholders
             112,327       (112,327 )             —  
Due to related party
     33,270                               33,270  
Due to member
     8,800                               8,800  
Total current liabilities
     3,954,273       179,054       (179,054 )     (897,000 )     3,057,273  
                                         
Long-term notes to members - net of unamortized discount
     64,224                               64,224  
                                         
                                         
Total liabilities
     4,018,497       179,054       (179,054 )     (897,000 )     3,121,497  
                                         
Commitments and contingencies
     —                               —  
Warrant liability
                             3,083,000       3,083,000  
                                         
Members' deficit:
                                        
Contributed capital
     3,448,856                       (3,448,856 )     —  
Accumulated deficit
     (5,254,759 )                     5,254,759       —  
Non-controlling interest - consolidated subsidiary
     (123 )                             (123 )
Total members' deficit
     (1,806,026 )                     1,805,903       (123 )
Stockholders' Deficit
                                        
Capital stock
                                        
Authorized:
                                        
10,000,000 preferred shares, $.00001 par value
                                        
300,000,000 common shares, $.00001 par value
                                        
Issued and outstanding shares:
                                        
0 preferred shares
             —                          
26,759,646 common shares
             174       (174 )     268       268  
Capital in excess of par value
             146,328       (146,328 )     4,399,658       4,399,658  
Accumulated deficit
             (320,903 )     320,903       (5,254,759 )     (5,254,759 )
Total stockholders deficit
             (174,401 )     174,401       (854,833 )     (854,833 )
Total liabilities and members' deficit
   $ 2,212,471     $ 4,653     $ (4,653 )   $ 3,137,070     $ 5,349,540  
                                         
 
Note 1- Reflects the split off of the assets and liabilities of Touchstone Split Corp.,  per the merger agreement.
Note 2-Reflects the closing on January 25, 2011 of a private placement that raised $5,434,446. Offering proceeds included $614,070 of indebtedness and $395,396 of Placement Agent Fees which were converted into PPO securities so that gross cash proceeds were $4,424,980.  Offering expenses incurred including cash expenses of approximately $1,005,000 and non cash expenses consisting of the Placement Agent fees of $395,396 and $390,000 for the estimated fair value of the Placement Agent and Advisor Warrants issued to the Placement Agent. 22nd Century received net cash proceeds of approximately $ 3,420,000.    In addition this reflects:
-The recapitalization of 22nd Century Group, Inc.as part of the merger agreement.
-The allocation of $3,083,000 to common stock warrant liability based on the fair value of the warrants issued in the merger.
-Offering costs of arppoximately $70,000 had been paid in cash prior to September 30, 2010, the date of the proforma balance sheet
Note 3 – The pro forma financial statements do not reflect income taxes as a result of an assumed valuation allowance offsetting an deferred tax asset.
Note 4 – The pro forma financial statements do not reflect any gain or loss that may result as from changes in the derivative warrant liability between reporting periods.
 
 
 
UNUADITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
22ND CENTURY GROUP, INC. AND SUBSIDIARIES
Nine Months Ended September 30, 2010
(unaudited)
                               
   
22nd Century
Limited, LLC
    
22nd Century
Group, Inc.
    
Adjustment
Note 1
    
Adjustment
Note 2
    
Pro forma
  
                               
Research Cigarette Sales and Design Fee
   $ 22,102                       $ 22,102  
                                   
Operating expenses:
                                  
Costs of goods sold
     6,302                         6,302  
Research and development
     282,971                         282,971  
Mineral property costs
           $ 1,314     $ (1,314 )           —  
General and administrative
     383,576       45,359                     428,935  
Amortization
     121,734                             121,734  
      794,583       46,673       (1,314 )           839,942  
                                       
Operating loss
     (772,481 )     (46,673 )     1,314             (817,840 )
                                       
Interest income
             1       (1 )           —  
Interest expense and debt expense
     (218,519 )     (6,176 )     6,176       48,750       (169,769 )
                                         
                                         
Net loss
     (991,000 )     (52,848 )     7,489       48,750       (987,609 )
                                         
Net loss attributable to non-controlling interest
     4                               4  
                                         
Net loss applicable to common shares
   $ (990,996 )   $ (52,848 )   $ 7,489     $ 48,750     $ (987,605 )
                                         
Loss per common share - basic and diluted
   $ (0.09 )   $ —                     $ (0.04 )
                                         
Share used in computing basic and diluted loss per share
     11,232,202       17,356,590       (12,030,970 )     5,434,446       21,992,268  
                                         
Note 1 -  Reflects the shares cancelled in the split-off  and the elimination of any operations of the split-off business.
Note 2 -  Reflects the private placement and related merger:  5,434,446 shares issued in the private placement and the reduction of  interest expense as result of debt that was converted for shares issued in the private placement
Note 3 – The pro forma financial statements do not reflect any gain or loss that may result as from changes in the derivative warrant liability between reporting periods.
 
 
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
22ND CENTURY GROUP, INC. AND SUBSIDIARIES
Year Ended December 31, 2009
(unaudited)

   
22nd Century
Limited, LLC
    
22nd Century
Group, Inc.
    
Adjustment
Note 1
    
Adjustment
Note 2
    
Pro forma
  
                               
Product Sales and Design Fee
   $ 27,612                       $ 27,612  
                                   
Operating expenses:
                                  
Costs of goods sold
     20,112                         20,112  
Research and development
     540,300                         540,300  
Mineral property costs
           $ 1,900     $ (1,900 )           -  
General and administrative
     280,709       50,962                     331,671  
Amortization
     144,792                             144,792  
      985,913       52,862       (1,900 )           1,036,875  
                                       
Operating loss
     (958,301 )     (52,862 )     1,900             (1,009,263 )
                                       
Interest income
             15       (15 )           -  
Interest expense and debt expense
     (268,503 )     (2,622 )     2,622       65,000       (203,503 )
                                         
Net loss
     (1,226,804 )     (55,469 )     4,507       65,000       (1,212,766 )
                                         
Net loss attributable to non-controlling interest
     119                               119  
                                         
Net loss applicable to common shares
   $ (1,226,685 )   $ (55,469 )   $ 4,507     $ 65,000     $ (1,212,647 )
                                         
Loss per common share - basic and diluted
   $ (0.23 )   $ -                     $ (0.08 )
                                         
Share used in computing basic and diluted loss per share
     5,304,423       17,356,590       (12,030,970 )     5,434,446       16,064,489  

Note 1 -  Reflects the shares cancelled in the split-off  and the elimination of any operations of the split-off business.
Note 2 -  Reflects the private placement and related merger:  5,434,446 shares issued in the private placement and the reduction of  interest expense as result of debt that was converted for shares issued in the private placement
Note 3 – The pro forma financial statements do not reflect any gain or loss that may result as from changes in the derivative warrant liability between reporting periods.

 
 
 
 

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